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    Subject: patents
    Details: . So why do governments issue patents at all? Explain, showing the contrast between the average and marginal cost curves for a firm with very high fixed costs and low marginal costs, and those assumed for the ?standard? textbook firm. What might one predict would happen to the rate of innovation if there were no patent protection? Why? Can you interpret your prediction in terms of trade-ff between short-run and long-run allocative distortions, or ?short-run pain for long-run gain?? Be as specific as you can about exactly what society as a whole is giving up, and getting, within the terms of this trade-off.

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    So why do governments issue patents at all? Explain, showing the contrast between the average and marginal cost curves for a firm with very high fixed costs and low marginal costs, and those assumed for the ?standard? textbook firm. What might one predict would happen to the rate of innovation if there were no patent protection? Why? Can you interpret your prediction in terms of trade-ff between short-run and long-run allocative distortions, or ?short-run pain for long-run gain?? Be as specific as you can about exactly what society as a whole is giving up, and getting, within the terms of this trade-off.

    There are several reasons why governments issue patents. These include, encouraging the drug companies to do research. Allowing those companies who have done research to recoup their costs over a period of time, to encourage the companies to sell newly discovered drugs at affordable prices and to prevent the overnight 'stealing' of research findings by copycats.
    Besides, the patents are granted in good faith that the money the companies realize as profits will be used for R&D having a ...

    Solution Summary

    The purposes of patents are noted and discussed in the solution.

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